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A compelling question arises in the wake of April's larger-than-expected 7.6% rise in existing home sales: Should Congress again extend the federal tax credit for home buyers?

The credit, $8,000 for first-time buyers, $6,500 for repeat buyers, covered home sales contracts signed by April 30 with the stipulation that the transactions have to close by June 30 to qualify. Let's examine each side of the argument for extending it.

End It: The Credit Has Served Its Purpose

In April, the housing sector continued to reflect a recovery that's gaining strength, as measured by existing sales. As noted, sales rose 7.6% , to an annual rate of 5.77 million units in April after rising 7% in March, according to data compiled by the National Association of Realtors. What's more, sales are up 22.8% compared to a year ago, when they totaled a 4.7-million-unit annual rate.

Second, the median U.S. home price is now $173,100 -- up 4% from a year ago, and distressed sales have fallen to 33% from 35% in March, and from 45% a year ago.

"In fact, a majority of the markets have seen price gains recently," Yun said Monday, in a statement. "A return to old-fashioned, responsible lending and buying will help the housing market avoid disruptive and painful bubble-bust cycles." Since April 2009, the median home price has risen 2.1% in the Northeast to $243,000; gained 5.8% in the Midwest to $146,400; inched 1.2% higher in the South to $150,000; and risen 3.8% in the West to $212,400.

Perhaps the strongest argument for extending the tax credit concerns the large inventory of unsold existing homes. In April, existing home inventories rose 11.5% to 4.04 million units, an 8.4-month supply at the current sales pace, up from an 8.1-month supply in March. Inventories are also 2.7% higher than they were a year ago.

Further, although inventories are down 11.6% from the record 4.58-million unit peak reached in July 2008, they're still roughly double their 30-year average, which is about 2 million units. Moreover, even allowing for the larger U.S. population base, and the increased popularity of home ownership today compared to the 1980s, inventories are still unusually high by historical standards. This suggests the recent firming of home prices is fragile, and that any pull back by prospective home buyers could send prices tumbling again.

The second-strongest argument for extending the tax credit concerns U.S. GDP growth and employment levels. Historically, large, sustained gains in employment have driven housing sector recoveries -- and U.S. economic expansions in general. In light of the more than 8 million jobs eliminated during the recession, the U.S. economy needs every employment booster it can get -- from natural growth, tax credit-induced purchases, exports, or other sources. Extending the tax credit should continue to boost home sales -- one way to increase both GDP and employment levels.
And the Winner Is ...

Both sides make fairly strong cases regarding the federal tax credit, but this juncture, it appears that the "nays" have it. Congress probably won't extend the program again, based on the argument that the recovery is now creating enough jobs per month to support both a self-sustaining housing recovery and economic expansion, even without the extra boost the credit would provide.